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195 Cards in this Set
- Front
- Back
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What is the classic Agency relationship
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Employer/Employee
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What three consequences flow from the agency relationship
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Tort
Fiduciary Duties Contractual Liabilities |
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What is the law of agency
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hiring someone to work on your behalf
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What are the elements of Agency
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Mutual Consent by both agent and principal
Agent will act on "behalf" of principal Agent is subject to the Principal's control |
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Can lending relationship ever evolve from a third party contractual relationship to a principal/agency relationship
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Yes - Ex. Gay Jenson Farms v. Cargill
Various Factors demonstrated agency relationship including: 1) security interest 2) Oversight 3) Control |
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What is the Rule of Agency
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Agency is the fiduciary relationship that results from the manifestation of consent by one person to another that the other shall act primarily on his behalf and subject to his control, and consent by the other so to act.
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What is required for their to be control
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The agent must either consent or demonstrate through their conduct or by k
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In what two ways can a creditor/debtor relationship become an agency relationship
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1) traditional element analysis: consent, on behalf, control
2) Restatement §14 O; assuming defacto control over the conduct of the debtor |
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What policy issues impacted the outcome of the Cargill Case
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1) Finding the debtor relationship had shifted to an agency relationship chills a rationale type of business relationship by imposing an agency relationship on the creditor
2) Could be hometowning for the farmers 3) Cargill propped up Warren for their own benefits and perpetuated the situation so they should be responsible. |
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What minority approach to control was demonstrated by Buck v. Nash Finch
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The court felt the principal had to exercise control over the very activity giving rise to the dispute.
Key Point: Nash Finch didn't exercise control to prevent Boedeker from making additional purchases doesn't mean they didn't have the authority to control |
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What is the majority approach regarding the issue of control in establishing an agency relationship
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Broad consideration - ie Cargill approach.
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What time period does the court consider when determining whether there was control?
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The court looks at the control exercised at the time the K was formed.
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What is the broad rule of mutual consent
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Did parties consent to the broad outlines
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Oversight Activities which are generally ok without creating an agency relationship
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Oversight - audits
Counseling |
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Actions which point to agency relationship
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Putting a person on site
Right of veto over key decisions Providing Creditors assurance of solvency Intermingled Operations |
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Are people who work for themselves agents
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Generally not unless the relationship is one of fiduciary character - ie lawyer
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Types of Authority in Agency Relationship
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Actual
Implied Apparent |
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What is actual authority
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Expressly granted orally or in writing
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What is implied authority
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A derivation of actual authority
Authority to do what is necessary, usual and proper to accomplish or perform an agent's express responsibilities • To act in a manner in which an agent believes the principal wishes the agent to act based on the agent’s reasonable interpretation of the principal’s manifestation in light of the principal’s objectives and other facts known to the agent. |
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What is apparent authority
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•such power as a principal holds his agent out as possessing or permits him to exercise under such circumstances as to preclude a denial of its existence. –
•generally what is communicated to a third party as to the person’s authority |
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What other two theory's make a principal responsible for the K's entered into by agent
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Ratification
Estoppel |
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What does the Restatement Third say about apparent authority
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• When a third party reasonably believes the actor has authority to act on behalf of the principal and that belief is traceable to the principal’s manifestations.
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What is the Restmt 2 rule about undisclosed principles
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o An undisclosed principal is liable for acts of an agent “done on his account, if usual or necessary in such transactions, although forbidden by the principal”
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What does the Restmt 3 say regarding the liability of undisclosed principal
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o 1) an undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
o2) An undisclosed principal may not rely on instructions fine an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed |
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Apparent Authority Cases
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Mills Church, Ampex, & Dweck
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what are the two methods of conveying actual authority
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Express - when the principal tells the agent to do something and they do it.
Implied: When the agent reasonably believes because of present or past conduct of the principal that the principal wishes him to act in a certain way or to have certain authority. |
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What is Incidental Actual Authority
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a subset of implied authority. Difference is that this is based on one specific type of action – when the principal assigns a certain broad task or sphere of responsibility to the agent but doesn’t specify some of the incidental tasks to that larger duty that the principal has assigned.
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what is an example of incidental Actual Authority
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Ex. The principal gives the agent responsibility for a larger task and the agent does something related to that task. The question is whether the agent reasonably believes that they have the authority to take an action based on the larger assigned responsibility.
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What is a sub-agency relationship
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when an agent hires another agent. Note: this creates an agency relationship between the agent and sub agent and also between the principal and the sub agent.
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Apparent Authority Definition
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o Rule: Apparent authority is the power held by an agent or other actor to affect a principal’s legal relations with third parties when a third party reasonably believes the actor has authority to act on behalf of principle and that belief is traceable to the principal’s manifestations.
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What are the two elements of Apparent Authority
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1) Manifestations Regarding the Agent's Authority
2) WHich give 3rd party reasonable belief that the agent has the authority to contract on behalf of the principal |
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What are the elements of Apparent Authority in the Context of a corporation
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1) Manifesttions attributable to the principal
2) |
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How do job titles impact authority
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Courts commonly recognize authority based on job title. Power of Position
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Who can provide manifestations regarding someone's authority to K for the Corp?
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Based on Job TItle
Direct assertions of the principal Assertions by other 3rd parties (agents) who are making manifestations regarding the authority of the agent. Based on the Agent's manifestations themselves |
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what are the various ways an agent can assert their authority to sign on behalf of the corp
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o Telling other people about their job title
o Agent entering into the K had actual authority at one point to enter into the K and that power gets removed. That apparent authority could still be attributable to the P |
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Note Apparent Authority can be created if the third party has no idea the actual owner exists
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Ex. Watteau v. Fenwick
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What type of authority is created when someone is held out as a front person with authority and the third party doesn't know the actual principal exists
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Inherent Authority
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What is the Restmt 2 rule. for undisclosed principals
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• An undisclosed principal is liable for acts of an agent “done on his account, if usual or necessary in such transactions, although forbidden by the principal
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What is the Resmt thirds view of Inherent Authority
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1) an undisclosed principal is subject to liability to a third party who is justifiably induced to make a detrimental change in position by an agent acting on the principal’s behalf and without actual authority if the principal, having notice of the agent’s conduct and that it might induce others to change their positions, did not take reasonable steps to notify them of the facts.
2) An undisclosed principal may not rely on instructions to an agent that qualify or reduce the agent’s authority to less than the authority a third party would reasonably believe the agent to have under the same circumstances if the principal had been disclosed |
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What is the primary difference between the rule for Inherent Authority between the 2nd and 3rd restmt
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The third says that the undisclosed P is only liable if they had notice of the unauthorized activity and failed to take steps to clarify the situation.
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Does being married imply an agency relationship
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No
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Does property ownership imply agency
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no
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what elements are required for ratification
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1) Act done/professedly done on persons account.
2) Act or affirmance by principal 3) Intent to ratify or affirm 4) Full knowledge of material terms of the deal |
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Is ratification favorable to the P
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Yes - it gives them the option to not be bound by a K they didn't intend to be bound to - but if they ratify they can accept the K
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What if any limitations exist on the one way power of the principal to ratify
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1) Has there been a material change in the K's subject matter - can no longer be ratified
2) The Contractual third party has the right to preliminarily withdraw. They withdraw before the principal ratifies on behalf of their supposed agent. |
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How long can the principal wait to ratify?
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A reasonable time
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Is it necessary to prove an agency relationship in order to prove ratification
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No
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What is the rule of estoppel
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• When the P fails to take reasonable precautions to ensure that their customers are not defrauded. Then the principal is estopped to deny the K and is bound to it.
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What are the elements of Estoppel
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1) Negligent Act or Omission by the P.
2) Based upon the feigning of Authority - the third party reasonably believes in the imposter's authority 3) third party relies on this authority to their detriment |
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What type of reliance is required under estoppel
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You actually need to see some loss or change of position in reliance upon their mistaken belief in this person’s apparent authority.
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Who is liable when there is a partially disclosed principal
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when a party to a transaction has notice that the A is or may be acting for a P but has no notice of the P’s identify, then A is liable under the K (Atlantic Salmon)
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Who is liable when an undisclosed principal
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: both the fact of agency and the P’s identity are not disclosed. An A acting on behalf of an undisclosed P is personally liable on the K itself.
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What is the liabilty of the agent when they have apparent authority?
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• General Rule – Not liable under K
• Exception – Can be liable for breach of fiduciary duty – ex. If they paid more for the car than they were authorized to spend |
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Who is liable when the agent is unauthorized to enter the K
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Agent is liable under an implied warranty of authority
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Who is liable when there is an undisclosed principal
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• Third party thinks they are contracting directly with the principal ( Humble Case). Agent and principal are liable.
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What is the rule for an agent to avoid liability when there is a partially disclosed principal
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If the agent wants to avoid personal responsibility when there is a partially disclosed principal – he must disclose that he is acting in a representative capacity and the identity of the principal.
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o Partially disclosed principal rule:
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when the agent tells the 3rd party that they are working for a principal but doesn’t say who they are – the agent is liable for the K
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When would a person who purports to act on behalf of a corporation which does not exist not be liable
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if they made a good effort to operate the corporation but it didn’t work properly. Paperwork got lost, some other technical issue.
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What factors will the court consider in determining whether the deal falls within safe harbor #3 in the conflict of interest rules
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1) Process
2) Substance |
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What determines if the process is fair with regard to Safe Harbor #3
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Was their full candor with respect to the transaction
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What determines if the Substance of the deal is within the fairness of Safe Harbor #3
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Price
Purpose |
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When will the court pierce the corporate veil
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When a shareholder:
1) Engages in conduct 2) that intentionally deprives the corporation of sufficient funds to make the tort or K creditors whole. |
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What are the three tests for the BJR
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Tort Review Standard
No Review Standard Gross Negligence Standard - DE |
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What is required to prove Gross Negligence for BJR
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1) faulty Process
2) Irrational Business Decision Van Gorkum |
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What test did the court apply in Van Gorkum
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The rule itself is a presumption that in making a business decision, the directors of a corporation acted on an informed basis, in good faith and in the honest belief that the action taken was in the best interests of the company…thus, the party attacking a board decision as uninformed must rebut the presumption that its business judgment was an informed one.”
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What is the duty of disclosure clarified in Van Gorkum
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corporate directors must disclose all facts germane to a transaction that is subject to a shareholder vote. Directors should take reasonable actions to inform themselves before acting.
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What is the Entire Fairness Test
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Even if process is flawed - still no breach of the BJR if the transaction results are entirely fair.
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What are the Two categories of Corporate FD of Loyalty
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1) COI
2) Corporate Opportunities Doctrine |
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What constitutes a disinterested Director
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To be disinterested, the D must not have any family, financial, professional, or employment relationship with an interested D of such significance that one would reasonably expect that relationship to assert influence on a qualified D’s judgment.
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What are the two types of COI
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1) direct Conflict
2) Indirect Conflict |
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What is the test for a COI for a majority SH
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Fairness
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What are the safe harbors for a breach of the COI for Directors
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#1 - material facts of the O/D's interest are disclosed and boD in GF authorizes by a maj of the disinterested D's
#2 - Same as #1 - except vote is by MAJ of shareholders #3The K is Fair even though it doesn't satisfy 1 or 2 |
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What does the Corporate Opportunities Doctrine Regulate
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whether O/D has wrongfully taken opportunity that should have been left for company. If O/D violates this framework, then violated duty of loyalty UNLESS can show there is a defense.
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What does the Corporate Opp. Doctrine say about the outcome when a DIr. learns of the opportunity in their individual Capacity
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1) Officer - can take the opportunity unless the corp has an interest or expectancy in the opportunity or if the opp is essential to corp. business
2) Outside Dir - can take opportunity |
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What happens if the Dir finds the opportunity due to their role in the company
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O/D - can take if outside corp line of business - very broad rule
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What happens under Corp. Opp Doctrine if Corp. actually sends the Officer and Dir in search of Opp
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Can't take the opportunity
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What are the two defenses to a Corp. Opp Doctrine
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Corp Rejection Defense
Financial Inability Defense |
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What are the nuances to Corp Rejection Defense
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• If made by maj of disinterested directors, then operate as complete whole defense.
• If rejection included the votes of interested directors, then corporate rejection only works as defense if person who took opportunity and breached duty of loyalty can show rejection was fair→fully informed disinterested BOD would have made the same decision |
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Are COI's safe if they meet a safe harbor provision
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The COI can still be challenged on other grounds and the courts have utilized this opening.
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How is a claim of a violation of the Corp. Fiduciary Duty of Loyalty: COI examined
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• First, look for a claim that an O/D was negligent and breached their duty of care. Then you identify if there is even a Conflict of Interest.
o If yes, you see if the transaction is protected under §144 in order of (1), (2), then (3). |
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What is the effect of an 144(a) ratification
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o Court says the effect is that it protects the decision from challenge so long as the decision by the BOD passes the BJR.
o If it fails the BJR – the deal is voidable and the BOD can be liable for a breach of a duty of care. o |
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What types of authority can be used to demonstrate a principal's K liability to a 3rd party for acts of its agent
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1) Express or Actual Authority
2) Implied Authority 3) Apparent Authority (P has held out person to be his A) |
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What types of manifestations are necessary to demonstrate apparent authority
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Appearance of authority must be shown to have been created by the manifestations of the alleged P and not solely by the supposed agent
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What is the standard for what would demonstrate apparent authority to a 3rd party
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Conduct which would lead a person of ordinary prudence and circumspection to believe that the imposter was in truth the proprietor's agent will not permit the principal to escape liability.
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Who is liable when an agent is acting for a partially disclosed principal
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The agent is liable
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Who is liable when the agent is acting for a fully disclosed principal
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If agent is acting within authority - then the principal is liable.
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If has has apparent authority they will generally not be bound. Under what circumstances will they be bound
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If K was against the instructions of P. A violated his fiduciary duty and can be liable. However - P is also liable for the K
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If fully disclosed P and unauthorized agent who enters into K with 3rd party. who is liable
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A is liable and P is bound by estoppel - Furniture case
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Partially Disclosed agent - who is liable
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Agent is liable
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Principal Disclosed and agent has actual authority
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Agent not liable
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Principal Disclosed and Agent has Apparent Authority
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General Ruls - Agent not liable
Exception - A can be liable for breach of fiduciary duty. |
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Disclosed Principal and Unauthorized Agent
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Agent is liable under implied warranty of authority
P is also liable under Restatement 2 or only if they have notice under Restatement 3 |
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Undisclosed Principal
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Agent and Principal are liable.
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What agents are necessary for Respondent Superior
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Mutual Consent by P/A
A acting on behalf of P A acting subject to "'s control (authority) + Two additional requirements 1) Need Employer/Employee relationship 2) agent is acting in scope of agent's employment |
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What is required to show the Master/Servant Link
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Need to show P has the authority to control the details over how A does his job.
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what is the rule for Respondeat Superior
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Principal is liable for the torts of his servant type agent when committed in the scope of employment.
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What elements are important in determining whether an agent is acting "on behalf of" the principal
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Who has P/L risk
The fiduciary character of the relationship |
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What two types of control do the courts consider in Respondent Superior cases
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Direct Control
Indirect Control |
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What types of Direct Control are considered to establish Respondeat Superior
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Requiring certain reports
Controlling hours of operation Ownership of merchandise and or equipment Uniform requirements Control over hiring and firing decisions |
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What types of Indirect Control are considered to establish Respondeat Superior
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Payment of Utility Bills
Terminable K at will of only one party Title to products P/L risk - if with proprietor then strong factor against agency relationship Signage |
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What are two tests for broad and narrow approach to establishing control for M/S relationship
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General Control
or Dunkin Donuts control over the instrumentality of the Harm.DD didn't exercise control over the security and so they didn't control the lack of security which led to the robbery. |
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What is the broad reading of Control sufficient to establish RS
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TT showing principal had control over A's entire biz ( Dominos)
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What is narrow reading of control sufficient to establish RS
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P had control over Specific Area of biz that gave rise to the liability ( DD)
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What is another way to impose liability on an principal if there is no MSR
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Apparent agency
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What is the definition of Apparent authority
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Manifestations by the alleged P which create a reasonable belief in the third party that the alleged agent is authorized to bind the principal.
Primary issue is do the manifestations create a reasonable belief that TT thinks they are dealing with P even though it is actually the agent |
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What are the elements of Apparent Agency
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1)Manifestations by or attributable to the principal
2) These manifestations create a reasonable belief in third party that agent and principal are same entity and 3rd party is dealing directly with the principal. |
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What are the two tests which are applied to determine the scope of employment element for negligent torts
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Foreseeability Test
Intent/Purpose Test |
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What is the intent test
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Was the employees conduct motivated by an intent to serve the master. Was the agent doing something on their own behalf or on behalf of the principal
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What is the foreseeability test
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was the conduct foreseeable by the principal. is the conduct characteristic of the activity that the principal is engaged in.
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What are some examples of activities which are not foreseeable as within scope of employment
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Conduct Too far removed in time and place
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What tests are applied for intentional torts
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Grimsley Test
Foreseeability Test |
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What is the essence of the Grimsley Test
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Was the act in response to the P's intention to disrupt the work or was the act in retaliation.
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What is the rule for the Grimsley Test
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The P is liable for the intentional torts of the employee when the conduct is in response to interference by the plaintiff
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What are the elements of the Grimsley Test
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Intentional Tort
Conduct by the P which demonstrated an intent to disrupt the employees performance of their job or which actually does so. Tort was done in "response" to the conduct and not in "retaliation" to the conduct. |
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What details are considered when determining whether the tort was done in "response"
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The goal was to stop the behavior and get back to your job as opposed to acting out of anger and not in an effort to get back to your job.
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What is the difference in the foreseeability test applied under negligent or intentional torts
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The foreseeability test for intentional tests is more narrowly applied
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What is the foreseeability test for intentional torts
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conduct which is foreseeable by the master - it must be a direct outgrowth of the instructions the employee was given or the employees actual job assignment.
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What exceptions allow a finding of liability for the principal even though the elements of respondeat superior are not met
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1) Danger Exceptions
Inherently Dangerous Activities/Negligence Per Se Ultrahazardous activities 2) Non-delegable Duties |
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If an IC is hired to do a job that involves inherently dangerous activities and is not negligent - who is liable
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The IC
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If an IC is hired for inherently dangerous activity and is negligent - who is liable
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The P
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Inherently Dangerous Activities
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Those which are particularly dangerous unless conducted with utmost care, all due skill or caution.
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Ultra Hazardous Activities
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Activities which are never safe no matter how much skill or care is used
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Non-delegable Activities
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When responsibility is so important, it should not be allowed to be transferred to anyone else.
Can also be based on statute |
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What are elements of Non-Delegable Duty Exception
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1) Super Important Common Law or Statute Based Activity
2) Negligence associated with performance of that activity by IC. |
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Is negligence required for establishing liability for ultrahazardous activities
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No this is strict liability - no negligence required
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What is the rationale behind making the P liable for ultrahazardous activities
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the fact that the only feasible method of accident prevention may be to reduce the amount of the activity or substitute another activity argues for placing liability on the principal, who makes the decision whether to undertake the activity in the first place
o Without such liability a principal might hire judgment-proof independent contractors to do his dangerous jobs, knowing that the contractors would have an incentive to cut corners on protecting safety and health and that this would reduce the cost of the contract to him. |
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What is the difference between control in an agency relationship vs. M/S relationship
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Agency - how the work is done
M/S - control over the details of the work |
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What is required for a Plaintiff to recover from a principal for an employee's intentional tort
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employee’s tort must be committed in response to π’s conduct: to recover damages from an employer for injuries from an employee’s tort, a π must show that the employee’s tort was in response to the π’s conduct that was interfering with the employee’s ability to perform his duties
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What will make a principal vicariously liable for the acts of an IC hired for an inherently dangerous activity
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1. If contractor fails to exercise requisite care in accomplishing task, then P is vicariously liable for injuries that may result
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Can an employee of an IC use the abnormally dangerous activity exception to hold the principal liable?
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No - only available to third parties - one exception might be if the IC had no workmans comp insurance.
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Is it possible to delegate a non-delegable duty
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yes - you merely can't delegate the liability
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What are the 3 types of Fiduciary duties which apply to Agents
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1) Duty to Obey
2) Duty of Care 3) Duty of Loyalty |
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Which of the Fiduciary Duties of agents are most important
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Duty of Loyalty
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What is the Duty to Obey
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Means to obey reasonable instructions of your principal
Note: not required to obey illegal or unethical instructions |
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What is the Duty of Care
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Obligation to do job in a non-negligent manner
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What is the rule of Duty of Loyalty
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An umbrella of concepts that are hard to unify : Duty not to put A's interests or a drd party interest ahead of Principal's interest
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In what types of situations are you most likely to see a breach of the duty of agent loyalty
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1) Secret Profits Cases
2) Conflicts of Interest 3) Grabbing and leaving |
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What are Secret Profits
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When A obtains profits as a result of his employment by P
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What are the elements of Secret Profits
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1) There is an A that is earning proifts b/c of his position with the P
2) There must be some level of dishonesty by the A |
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What results in a conflict of interest
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When the person is on two sides of the same issue or transaction - an incompatibility b/t one's private interests and one's fiduciary duty
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What is grabbing and leaving
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ex. disclosing trade secrets or using confidential information obtained with employment to compete
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What is the remedy when there is a violation of the secret profits rule
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Agent owes his ill-gotten profits to principal if agent came into the money through his position with the Principal
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What is necessary to determine that the Agent is earning the profits b/c of his position or predominant part of his position
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Must consider whether the position is the only reason shy the agent is able to get the money -or merely afforded him the opportunity to make the gains
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Do the secret profits in a breach of fiduciary duty have to be at the expense of the principal
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No - the money does not have to be $ the principal would have otherwise directly earned
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Is it a secret profits violation if the business opportunity comes because of reputation and not because of position
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No - it may be a conflict of interest if party is representing multiple sides - ie. auto mfg.
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Does consent negate the Fiduciary breach regarding a COI between a principal and agent
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The conflict can be cured if the agent disclosed to the P and P consents, then everything is ok.
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What is the remedy for a conflict of I violation
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Disgorgement - have to give back any profits earned
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What are the duties and obligations of the principals
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1. Duty of care – P has a duty to provide a safe and clean working environment
2. Duty of good faith – undefined; P has a duty to not to take action injurious to their employees biz |
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what is the rule for grabbing and leaving
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RULE: Cannot solicit former employer's clients who are not openly engaged in biz in advertised locations OR whose availability cannot be easily ascertained.
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Partnership Definition
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Association of two or more persons to carry on as co-owners of a business for profit
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What are two ways partners can be held liable
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1) K liability
2) tort liability |
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What are two main doctrines which govern partnerships
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UPA - Uniform Partnership Act - (40% of states, 1914)
RUPA - revised UPA - (60% , 1997 incl. CA, AZ and NV) |
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What four factors determine whether a partnership exists
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1) Intention of the Parties
2) Right to Share in the Profits 3) Obligation to share in the losses 4) Shared control and management of the partnership property and business |
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What are the two types of intention considered in determining the existence of a partnership
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1) Parties know what a Pship is and have full knowledge of the consequences legally of being in a partnership
2) Or ( More common test) We don't cae what they thought, we only care about if they reached agreement on their relationship and that it looks like a P. |
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Does Fiduciary Duty of Loyalty continue after termination of employment
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It can - ex. customer list that is valuable
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Is profit sharing prima facie evidence of a partnershup
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No - courts look to totality of the circmstances and consider several factors
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what is a closed corporation
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when the rich shareholders personally guarantee the obligations of the corp
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Special Purpose Vehicles (Special Purpose Entity):
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when a party creates a business under the umbrella corp. merely to enter into arrangements with other parties. This vehicle helps shield your assets from other partners.
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Do you need all factors to find there is a partnership
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They are factors - not elements - no need to have all.
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What other considerations are relevant to whether there is a partnership
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Language of the Agreement
Interaction with 3rd parties - did they hold themselves out as partners Rights of the parties on dissolution |
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RUPA says that Sharing profits is prima facie evidence of having a partnership . What is Schwart's rule
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Totality of the circumstances is the appropriate test
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What is Elements of Partnership by Estoppel
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Representations of Partnership by or attributable to a purported partner holding himself out to third party as a partner
2. These representations by partner require 3rd parties to Reasonably believe there is a partnership 3. Third party needs to rely to their detriment that there is a partnership. |
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What is required to demonstrate that a 3rd party reasonably believes that the partnership existed for partnership by estoppel
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You have to demonstrate that this belief affected the 3rd party's decision making
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What are the requirements under the UPA for parties to qualify as having "given credit"
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Majority rule: partnership by estoppel is avail to all who relied and were injured
Minority Rule: says some cts say literally, you need to be a creditor, |
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what are the two methods to determining if there is a partnership
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Partnership in Fact
Partnership by Estoppel |
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What creates fiduciary duties on the part of partners
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All partners are agents and thus have fiduciary duties
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What are Pship fiduciary rules
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1) Duty of Care
2) Duty of Loyalty |
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What is the Duty of Care in a partnership
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Limited to refraining from engaging in grossly negligent or reckless conduct, intentional misconduct, or knowing violation of the law.
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What is the duty of Loyalty in a partnership
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Broad Rule: P may not put own interests above the P's interest
Account to and hold as trustee any profit, property, or OPPORTUNITY derived from Pship ii. refrain from dealing with interests advers to the Pship until it dissolves iii. Refrain from competing with the Pship until it dissolves To breach loyalty, you put your own interest ahead of P (same as def used in agency) |
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Duty of Good Faith
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When acting in bad faith you are DIRECTLY injuring your partners
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When do you breach the duty of loyalty vs. the Duty of Good Faith
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Breached Duty of Loyalty if you injure the Pship VS Breached Duty of GF if you injure Ps directly
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What is an example of a breach of loyalty
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partner asks for IP and steals it to profit on own, taking profit from partnership. Indirectly hurts P's members
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What is the difference in a joint venture and a partnership
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Joint Venture is P for a specific purpose. Like building a condo tower. JVs are governed by partnership laws if JV meets the P test.
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Is the Duty of Good Faith a partnership fiduciary duty
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RUPA does not characterize this as a FD but just a duty/obligation
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What is the Partnership Opportunity Doctrine
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RULE: partner has Duty of Loyalty to inform other partners of any opportunities arising from the partnership.
If opportunity fitting of the Partnership comes to a P in role as P, he must disclose the opportunity to Pship. |
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What is the RUPA rule regarding Partnership Opp Doctrine
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Mere disclosure is not enough; you need consent of other partners
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What is the Rule in CA regarding Partnership Opportunity Doctrine
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You need disclosure and unanimous consent
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What are the two elements required for Partnership Opp. Doctrine
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1) Reason presented was b/c partner's involvement as partner
2) Opportunity must be one P is likely to take advantage of. 3) WHen this happens, you need to disclose to the other partners |
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How do you evaluate whether an opportunity is one the partnership would take advantage of
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Ask what the purpose of the partnership is and how closely the new opportunity is related to the purpose of the partnership
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what modifications are permitted under RUPA
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Duty of Loyalty: RUPA & CA law requires a unanimous decision to modify violations of the duty of loyalty. Nonetheless, CA law permits a partnership agreement to vary or permit ratifications of violations of the duty of loyalty only if the provision doing so is not manifestly unreasonable. (Perretta-p.111)
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How do you cure COI cases in partnerships
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In general - COI is cured when the partner in conflict "fully discloses to other partners and secures their approval and consent"
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How do you cure COI cases in CA
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Absent a provision in the actual K, you need unanimous approval of all partners
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It is possible to alter the partnership agreement so that a COI issue doesn't require a unanimous vote. What is the limitation to those changes
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Partnership can't allow the interested party to vote on the COI matter - otherwise it is considered manifestly unreasonable
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What is the overall rule for COI's in Partnerships
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When you have a Conflict of Interest
To cure you need disclosure and consent In CA, consent in thru a unanimous vote of ALL partners You can alter this in your Pship agreement as long as it is NOT manifestly unreasonable It is NOT Manifestly Unreasonable IF you keep the interested parties OUT of Tx. |
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Loyalty Breach - Partnership Grabbing and Leaving
What is the rule to avoid a breach |
IF LEAVING PARTNERSHIP WHERE YOU BRING IN CLIENTS, YOU CAN TAKE CLIENTS AS LONG AS
a. You compete on a level playing field AND b. you had a pre-existing relationship with those clients. NOTE: Rule also applies to law firm associates (agents/employees) |
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Is it permissible to take other members of partnership with you when you leave
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Ok unless solicitation is part of plan to cripple the firm
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Is it permissible to expel a partner
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Yes - as long as the expulsion takes place in good faith and is not for the financial gain of other partners
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What would constitute bad faith expulsion of a partner
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Wrongful withholding of money/property legally owed to partner at time of expulsion
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Is expelling a whistleblower a breach of good faith
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no - if the partnership says it can expel and sets out procedures for expulsion which are properly followed
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What two approaches do the courts apply in Doctrine of Good Faith cases for partnerships
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1) Economic Predation Approach -Wallace - Imply a duty of good faith as long as you provide the partner with the $ they were entitled to
2) Case by Case Approach - Bohatch - 3) Foregone Opportunity Analysis (schwartz) - |
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What are the elements of the Foregone Opportunity Analysis for Good Faith Doctrine partnership analysis
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1) What is the motivation for the action being complained of
2) Whether the right to pursue this action was foregone by the original K Basically - would the person to be expelled for this reason when the K was made - was it within the partner's reasonable expectations |
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What were the types of cases where partnershp operated in GF in partnership expulsions under the Bohatch approach
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Expell for whistle blowing - ok
purely business reasons - ok Protecting relations within firm - ok Resolving Fundamental Schism - ok |
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What is a good strategy for dealing with the GF issue in a partnership expulsion clause
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Have a "for cause" expulsion clause which defines why they can be expelles.
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What are the elements for insider trading
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JX
Trade/Tip On the Basis of Inside Info Material Non-public Info Scienter Fiduciary Duty Breach |
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What are elements for Tipper
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JX
Trade/Tip On the Basis of Inside Info Material Non-public Info Scienter Fiduciary Duty Breach Derived some Personal gain Tipped with the PURPOSE of deriving personal gain |
